Small business and small farm lending declined in 2023 as interest rates rose and lending standards tightened, according to three federal banking agencies with responsibilities for the Community Reinvestment Act (CRA).
Compared to 2022, the number of small business loans originated decreased by 5.1% and the number of small business loans originated diminished 5.6%, according to a fact sheet published on Monday (December 16).
The dollar amount of these loans decreased by 8.9% and 5.2%, respectively, in 2023 compared to the previous year, according to the fact sheet.
“The decline in lending is likely due, at least in part, to rising interest rates and tighter lending standards,” the fact sheet said.
These figures are based on the analysis of national summary statistics agencies for 2023 CRA data, according to the fact sheet.
They were compiled by the three member federal banking agencies of the Federal Financial Institutions Examination Council: he Board of Governors of the Federal Reserve Systemhe Federal Deposit Insurance Corporation (FDIC) and he Office of the Comptroller of the Currency.
The data covers only a portion of the credit extended to small businesses and farms, as depository institutions and nonbank financial institutions that do not report CRA data also make loans, according to the fact sheet.
In terms of the number of loans originated in 2023, about 94.9% of small business loans and 80.2% of small farm loans were for amounts less than $100,000, according to the fact sheet.
The analysis also found that 54.8% of small business loans and 58.1% of small farm loans went to businesses with revenues of $1 million or less, according to the fact sheet.
Only about 8.5% of small and medium businesses (SMBs) have found that bank loans for working capital are readily available, according to PYMNTS Intelligence and crossed river collaboration, “What’s next in credit: why SMEs prefer corporate credit cards for short-term financing.”
The report found that the challenges these companies face suggest that it may be difficult to qualify for business financing in the current economic environment.
The FDIC said in October that a high-touch approach and in-person visits to bank branches are “key conduits” to small business loans.
